The Water Services Division is notifying City Council of the need to complete a routine cost-of-service, rates, and fees analysis and study for the water, reclaimed water, and wastewater funds. Under the City Council adopted Principles of Sound Water Management - Water Policies, Chapter A Finance, Policy A3 Rate Design Elements, a formal rate study shall be performed every three (3) years. The last rate and fee study for these three funds was completed in 2016 and the time for a rate and fee study is overdue.

There are several critical aspects of a cost-of-service, rates, and fees analysis and study. First, the City seeks to contract with a professional consultant with expertise in utility financial planning must complete the study as a data-driven, documented, and defendable analysis. Second, the City will require that the study be conducted through a transparent public process, including various check-in points with City Council, the Water Commission, key stakeholders, and the community.
 
During the last rate study, a prior Flagstaff City Council directed Staff to revisit several policies and rate objectives in the subsequent rate study. Therefore, the next consultant to be hired will conduct the rate and fee study with a comprehensive review of current policies, the directives from previous Councils, directives from the current City Council, and the Water Commission. By taking these steps, the next consultant will confirm the prior study goals and pricing objectives. Next, the consultant will analyze financial data and customer consumption patterns, among other information, to evaluate revenue collection through a lens of equitable and proportional cost-of-service. Finally, the consultant will generate several rate models and alternative funding strategies that meet the goals and pricing objectives established earlier in the study.

Staff will work with the consultant on a community-outreach campaign; a critical step of engaging with and collecting preferences from the City's customer base. The City Council will be given the opportunity to review the information from the outreach campaign and will be presented several rate and fee structure models in order to determine the model that best achieve the goals and priorities established at the start of the rate and fee study. At its completion, the rate and fee study will provide the utility with an updated, sound financial plan that meets industry best practices for appropriate investment.

These studies typically take 12 to 18 months to complete. City Staff is ready to execute the process by bringing a contract to City Council for consideration at a subsequent Council meeting.